The “Internal” as Opposed to the “External” Stock Market

Financial news reports tend to focus on gains and losses recorded by a selective group of popularly followed stock market indices. These include the Dow Industrials,with 30 issues, unequally weighted (higher-priced issues have a larger influence, on the index); theStandard & Poor’s 500 Index, with 500 stocks (weighted by capitalization so that the index is unequally weighted, with larger companies more influential than smaller companies); the Nasdaq Composite Index,with approximately 3,500 separate issues (heavily weighted by capitalization so that at times perhaps only a dozen or so issues carry a very disproportionate effect); and theNew York Stock Exchange Index, which includes all issues on the New York Stock Exchange (also weighted so that larger companies most heavily influence the average).

Another index, the Value Line Arithmetic Average, includes approximately 2,000 issues traded on various exchanges and is not weighted by capitalization: All companies in that average are afforded equal weight.